The inability of a client to pursue a strong legal claim due to insufficient funding is an age-old predicament that remains the subject of much frustration and debate. Litigious disputes continue to involve larger numbers of documents than ever before, increasing the amount of resources committed to litigious proceedings and exacerbating the financial strain on disputants.
One of the most topical options for overcoming the financial barriers traditionally associated with litigation is the concept of “crowdfunding” litigation. An alternative to loans or traditional litigation funders, this model of litigation funding has recently started to gain significant traction on a global scale. Perhaps one of the most convincing demonstrations of the viability of “crowdfunding” for the purposes of litigation occurred this week, when it was announced that a British man had crowdfunded £145,000 to retain a legal team to bring prosecutions against a number of politicians in wake of the “Brexit” vote.
As it stands, only a handful of organisations currently operate in the litigation crowdfunding market. However, many of these organisations generally raise funds for litigious proceedings through one of two different models of crowdfunding. The first model is a donation based model which, as the name suggests, is reliant on charitable contributions from funders. To date, donation based litigation crowdfunding projects have generally centred around public interest cases that otherwise would not have been able to be litigated due to a lack of funding.
The second is an investment model, which operates more like a traditional litigation funding arrangement. Under this model, funders may provide a litigant with the capital necessary to run a trial in return for a share of the settlement funds or another financial incentive as agreed by the parties.
With the litigation crowdfunding market set to expand, it is more important than ever for potential funders to fully understand the implications of participating in the crowdfunding of litigious proceedings. Some noteworthy concerns with the concept of litigation crowdfunding are:
- Adverse costs orders – it is possible that a funder may be placed at risk of being required to pay money towards any costs order handed down in crowdfunded litigation. Complications also arise where there are multiple funders – which of the funders should the costs order be enforced against?
- Privilege – disclosing information about a claim to potential funders in an attempt to encourage investment may place at risk the right of a litigant to maintain privilege over that information, which may affect the prospects of the dispute.
In view of the above, it would seem that while the potential of this model of funding to provide a competitive alternative to traditional avenues of litigation funding is significant, that potential can only be fully realised once a number of practical issues with litigation crowdfunding are overcome.